Question 1

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.The investment is considered a stock investment with insignificant influence.Landers sold the shares on December 13 for $42,100 cash.Prepare Lander's journal entry to record this sale.

Accepted Answer

The answer of Landers,Inc.,held 1,500 of Shipman Company common stock...

Question 2

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.at $28.53 per share.The purchase is classified as a stock investment with insignificant influence.This is the company's first and only stock investment.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 30 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share.
-The fair value of the remaining shares is $29.50 per share at year-end.The amount that Jewel Company should report in the current-year income statement from its investment in Marcelo Corp.is:

Accepted Answer

A) Unrealized Gain-Income; $10,295. 
B) Realized Gain-Income; $3,395. 
C) Unrealized Loss-Equity; $3,395. 
D) Unrealized Gain-Income; $3,395. 
E) Unrealized Loss-Income; $3,395.

Question 3

A company has an investment in 9% bonds with a par value of $100,000 that pays interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end)would be:

Accepted Answer

A) $750. 
B) $1,500. 
C) $2,250. 
D) $4,500. 
E) $9,000.

Question 4

Roe Corporation owns 2,000 shares of WRJ Corporation stock.WRJ Corporation has 25,000 shares of stock outstanding.WRJ paid $4 per share in cash dividends to its stockholders.Roe's entry to record the receipt of these dividends is:

Accepted Answer

A) Debit Cash,$8,000; credit Long-Term Investments,$8,000. 
B) Debt Long-Term Investment,$8,000; credit Cash,$8,000. 
C) Debit Cash,$8,000; credit Dividend Revenue,$8,000. 
D) Debit Unrealized Gain-Equity,$8,000; credit Cash,$8,000. 
E) Debit Cash,$8,000; credit Interest Revenue,$8,000.

Question 5

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.

Accepted Answer

A) True 
 B)False

Question 6

At the end of the accounting period,the owners of debt securities:

Accepted Answer

A) Must report the dividend income accrued on the debt securities. 
B) Must retire the debt. 
C) Must record a gain or loss on the interest income earned. 
D) Must record a gain or loss on the dividend income earned. 
E) Must record any interest earned on the debt securities during the period.

Question 7

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Accepted Answer

A) True 
 B)False

Question 8

Any unrealized gain or loss for the portfolio of available-for-securities is reported in the equity section of the balance sheet.

Accepted Answer

A) True 
 B)False

Question 9

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity.The investor's journal entry to record the purchase is a debit to Debt Investments-HTM for $50,000 and a credit to Cash for $50,000.

Accepted Answer

A) True 
 B)False

Question 10

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

Accepted Answer

A) True 
 B)False

Question 11

A company paid $600,000 for 1-year,10% bonds with a par value of $600,000 on July 1.The bonds pay 5% interest semiannually on December 31 and June 30.The company intends to hold the bonds until they mature.Prepare the journal entries for the following dates and transactions related to this bond acquisition.
(1)Bonds purchased on July 1.
(2)Receipt of semiannual interest only on December 31.
(3)Receipt of semiannual interest only on June 30.
(4)Redemption of the bonds at maturity on June 30.

Accepted Answer

The answer of A company paid $600,000 for 1-year,10% bonds...

Question 12

On July 1 of the current year,a company paid $200,000 to purchase 7%,10-year bonds with a par value of $200,000; interest is paid semiannually on June 30 and December 31.The company intends to hold the bonds until they mature.Prepare the journal entries to record (1)the bond purchase,(2)the receipt of the first semiannual interest payment on December 31 of the current year,and (3)the receipt of the second semiannual payment on June 30.

Accepted Answer

The answer of On July 1 of the current year,a...

Question 13

The cost method of accounting,which does not adjust for changes in fair value,is used to account for long-term investments in equity securities with insignificant influence.

Accepted Answer

A) True 
 B)False

Question 14

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1.On October 17 of the same year,Ferris Corporation declared total cash dividends of $12,000.At year-end,Ferris Corporation reported net income of $60,000.The balance in the Bharrat's Equity Method Investments-Ferris account at December 31 should be:

Accepted Answer

A) $80,800. 
B) $100,000. 
C) $95,200. 
D) $119,200. 
E) $124,000.

Question 15

________ are debt securities a company intends and is able to hold until the maturity date.

Accepted Answer

The answer of ________ are debt securities a company intends...

Question 16

Debt securities are recorded at cost when purchased,and interest revenue for investments in debt securities is recorded when earned.

Accepted Answer

A) True 
 B)False

Question 17

All of the following are true for available-for-sale debt securities except for:

Accepted Answer

A) Recorded at cost when acquired. 
B) Earn interest that is reported in the income statement. 
C) Classified as either short-term or long-term securities. 
D) Reported at fair value on the balance sheet. 
E) Actively managed like Trading Securities.

Question 18

A company has net income of $130,500.Its net sales were $1,740,000 and its average total assets were $2,750,000.Its total asset turnover equals 4.7%.

Accepted Answer

A) True 
 B)False

Question 19

Draft Co.purchased 14,000 shares of Hamburg Corporation's 40,000 shares of common stock on January 1.This represented 35% of Hamburg's outstanding shares and gave Draft Co.significant influence over Hamburg's management and operations.On October 11,Hamburg declared and paid cash dividends of $30,000.On December 31,Hamburg reported net income of $125,000 for the year.Prepare the journal entries Draft Co.should record to account for the dividends received and the earnings reported by Hamburg Corporation.

Accepted Answer

The answer of Draft Co.purchased 14,000 shares of Hamburg Corporation's...

Question 20

A company reported net income of $225,000,net sales of $2,500,000,and average total assets of $2,100,000 for the current year.Calculate this company's profit margin,total asset turnover,and return on total assets.

Accepted Answer

The answer of A company reported net income of $225,000,net...

Exam 26: Investments

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.The investment is considered a stock investment with insignificant influence.Landers sold the shares on December 13 for $42,100 cash.Prepare Lander's journal entry to record this sale.

A company has an investment in 9% bonds with a par value of $100,000 that pays interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end) would be:

Roe Corporation owns 2,000 shares of WRJ Corporation stock.WRJ Corporation has 25,000 shares of stock outstanding.WRJ paid $4 per share in cash dividends to its stockholders.Roe's entry to record the receipt of these dividends is:

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.

At the end of the accounting period,the owners of debt securities:

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Any unrealized gain or loss for the portfolio of available-for-securities is reported in the equity section of the balance sheet.

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity.The investor's journal entry to record the purchase is a debit to Debt Investments-HTM for $50,000 and a credit to Cash for $50,000.

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

The cost method of accounting,which does not adjust for changes in fair value,is used to account for long-term investments in equity securities with insignificant influence.

________ are debt securities a company intends and is able to hold until the maturity date.

Debt securities are recorded at cost when purchased,and interest revenue for investments in debt securities is recorded when earned.

All of the following are true for available-for-sale debt securities except for:

A company has net income of $130,500.Its net sales were $1,740,000 and its average total assets were $2,750,000.Its total asset turnover equals 4.7%.

A company reported net income of $225,000,net sales of $2,500,000,and average total assets of $2,100,000 for the current year.Calculate this company's profit margin,total asset turnover,and return on total assets.